CARMELCRAFT CORPORATION &/OR CARMEN V. YULO, PRESIDENT AND GENERAL MANAGER, PETITIONERS, VS. NATIONAL LABOR RELATIONS COMMISSION, CARMELCRAFT EMPLOYEES UNION, PROGRESSIVE FEDERA…

Carmelcraft versus National Labor Relations Commission

The Case

This is a petition for certiorari brought by Carmelcraft Corporation and its president and general manager, Carmen Yulo, against the National Labor Relations Commission and the Carmelcraft Employees Union. The petitioners ask the Supreme Court to annul the labor tribunal's ruling that their shutdown of the business was an illegal lockout, an unfair labor practice, and a violation of the workers' right to self-organization. The case matters because it draws the line between a genuine exercise of management's prerogative to close a losing business and a sham closure designed to crush a newly formed union, and because it restates the rule that quitclaims of labor benefits cannot bar employees from claiming what the law gives them.

Procedural History

After the Carmelcraft Employees Union was registered and sought recognition that the company refused to give, the union filed a petition for certification election in June 1987. When the company ceased operations, the union filed complaints with the Department of Labor for illegal lockout, unfair labor practice and damages, and a day later for unpaid wages, emergency cost of living allowances, holiday pay and other benefits. The Labor Arbiter, on November 29, 1988, declared the shutdown illegal and violative of the employees' right to self-organization, and granted the claim for unpaid benefits. On appeal, the National Labor Relations Commission modified the decision, adding separation pay of one-half month for every year of service, and affirmed the rest. The company then came to the Supreme Court on a petition for certiorari, alleging grave abuse of discretion.

Facts

The Carmelcraft Employees Union was registered as a labor union and sought recognition from the company, which refused. The union then filed a petition for certification election in June 1987. On July 13, 1987, Carmelcraft Corporation, through Carmen Yulo, announced at a meeting with the employees that it would cease operations on August 13, 1987, citing serious financial losses. Operations did cease as announced.

The company's justification was a loss of 1,603.88 pesos as of December 31, 1986. There was no report of its operations during the seven and a half months that followed, before it decided to close. The company was capitalized at 3 million pesos. The union alleged, without satisfactory disproof, that the company had suggested it might not close if the employees affiliated with another union that management preferred.

The employees had earlier signed waivers and quitclaims on the understanding that management would prospectively implement all benefits under existing labor standard laws. The company argued these were voluntarily executed and should be respected as the law between the parties. Carmen Yulo also claimed she was not personally liable because the corporation has a separate legal personality and she was merely its agent.

Issues

• Whether or not the closure of operations was a legitimate exercise of management's prerogative rather than an unfair labor practice and an illegal lockout.
• Whether or not the employees are entitled to separation pay and unpaid benefits despite the waivers and quitclaims they signed.
• Whether or not Carmen Yulo may be held personally liable for the acts of the corporation.

Applicable Provisions

Article 248 of the Labor Code provides:

Article 248. Unfair labor practices of employers. It shall be unlawful for an employer to commit any of the following unfair labor practice: (a) To interfere with, restrain or coerce employes in the exercise of their right to self-organization;

The Court held that the closure was an unfair labor practice prohibited by this provision because it was meant to interfere with the employees' right to organize.

Article 283 of the Labor Code, which the Court invoked to grant separation pay, provides the rate of one-half month for every year of service where the closure is not justified.

Article 6 of the Civil Code provides:

Article 6. Rights may be waived, unless the waiver is contrary to law, public order, public policy, morals, or good customs, or prejudicial to a third person with a right recognized by law.

This provision defeats the quitclaims because waivers of labor benefits contravene public policy.

Article 1306 of the Civil Code provides:

Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

This provision defeats the argument that the waivers should be respected as the law between the parties.

Ruling

On the first issue, the Court held that the closure was not a legitimate exercise of management prerogative. While the determination to cease operations is a prerogative usually not interfered with, the State is bound to intervene where it is manifest that the closure is motivated not by a desire to avoid further losses but to discourage the workers from organizing. The claimed loss of less than 2,000 pesos, against a capitalization of 3 million pesos, was not serious enough to call for closure, and the timing, coming shortly after the certification election petition, betrayed the real reason. The act was an unfair labor practice under Article 248 and a defiance of the constitutional guarantee of the right to self-organization.

On the second issue, the Court rejected the claim of estoppel. Even if voluntarily executed, agreements are invalid if contrary to public policy, and the protection of labor is such a policy. The subordinate position of the employee renders him vulnerable, and quitclaims of workers' benefits will not estop them from asserting them. A deed of release or quitclaim cannot bar an employee from demanding benefits to which he is legally entitled.

On the third issue, the Court held Yulo liable. She was in fact and legal effect the corporation, being not only its president and general manager but also its owner, and she raised the defense of separate personality only at a tardy hour.

Doctrine

Management may close a business to avoid losses, but a closure motivated by a desire to discourage unionization is an unfair labor practice under Article 248 of the Labor Code and an illegal lockout. Even without such motivation, a closure cannot be justified where the claimed losses are not serious, and the employees are then entitled to separation pay under Article 283. Quitclaims and waivers of labor benefits, even if voluntarily signed, are invalid as contrary to public policy under Articles 6 and 1306 of the Civil Code, and do not estop employees from claiming what the law gives them. A corporate officer who owns and controls the corporation may be held personally liable for its illegal acts.

Disposition

The petition was dismissed and the challenged decision of the National Labor Relations Commission was affirmed, with costs against the petitioners.

Remember This

The single line to memorize: a closure that is a sham to defeat the workers' right to organize is an unfair labor practice, and no quitclaim can waive labor benefits contrary to public policy. Examiners use this case on the limits of management prerogative to close shop, on the invalidity of quitclaims, and on the personal liability of a controlling corporate officer.